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What is a Company voluntary arrangement? What you need to know

18/11/2021

Creditfix > Knowledge Hub > What is a Company voluntary arrangement? What you need to know

A Company Voluntary Arrangement (CVA) is the business equivalent of an Individual Voluntary Arrangement – an insolvency procedure that allows businesses struggling with debt to repay creditors while continuing to trade.

In this guide, we’ll explain what a Company Voluntary Arrangement is, how it works, and how it might allow you to protect your employees and settle your debts at the same time.

You could write off up to 81% of your unsecured debt today

What is a Company Voluntary Arrangement?

Company Voluntary Arrangements (CVAs) are arrangements designed to help companies that are facing serious financial issues and debt problems.

A CVA acts as a formal agreement between an insolvent business’s creditors and the company directors, and is designed to release part or all of the liability for debts between them and ensure that no individual is personally liable.

Also known as Company Administration, Company Liquidation, or Company Refinancing, a CVA can be set up by a creditor, a director of the company in question, or an Insolvency Practitioner (IP), a licensed debt professional who then acts as arbiter of the arrangement.

A CVA is most suitable for a company that would have a promising future if it could deal with historic debts, like onerous supply contracts, and offers the opportunity to deal with the company’s creditors, make the business more viable, and potentially save jobs

How does a Company Voluntary Arrangement work?

The CVA process can differ slightly depending on your company’s circumstances, but will usually include the following steps.

CVA proposal

Once you have enlisted the help of an Insolvency Practitioner, the first step in the CVA process is to create a CVA proposal.

Your Insolvency Practitioner will gather as much information as possible about your company’s financial status, and work with you to draft an arrangement that will be reviewed by yourself and fellow directors, before being shared with your creditors.

Moratorium

A statutory moratorium prevents company creditors from taking legal action to recover their debts, but unlike with administration, there is no automatic moratorium as part of the CVA process.

You will only benefit from a moratorium as part of the CVA if your business has:

  • No more than 50 employees
  • Balance sheet assets no greater than £5.1m
  • A turnover no greater than £10.2m

Creditors meeting

Once your CVA proposal has been drafted and shared with creditors, a creditors meeting will take place. This gives creditors the chance to discuss the terms of your proposal and voice any concerns.

Once any issues have been addressed, creditors will vote on whether to ratify the proposal. If at least 75% of the creditors (by value of debt) agree to the proposal, then the CVA is approved. You won’t be obliged to actually attend this meeting, as voting is often carried out over email, post, or proxy vote.

Insolvency Practitioner report

When the creditors vet the CVA, it is sent to them for consultation. The Insolvency Practitioner will then submit a report to the court and the creditors, which includes details of all meetings held and votes cast.

Beginning of CVA

The CVA process ends with you making your first monthly contribution towards the arrangement. The Insolvency Practitioner will take payment from you each month for as long as the arrangement lasts, and distribute the money among your creditors.

Provided you maintain your agreed-upon monthly contributions, your company will be protected by the arrangement. If you default on payments, however, you will be in breach of the agreement and it’s highly likely your creditors will push for compulsory liquidation.

We have a wide range of debt management solutions that could help you write off up to 81% of your debts

Check if you qualify

Who is eligible for a CVA?

Company Voluntary Arrangements are open to businesses that are insolvent or likely to become insolvent, and who have debts of £150,000 or more. Company directors must be willing to enter into Company Voluntary Arrangements with all their creditors.

In order to be eligible, company directors must show they do not have the financial resources to rescue the business on their own, and creditors must demonstrate a willingness to negotiate a CVA with company directors.

As long as creditors responsible for at least 75% of the business’s total debts agree to the terms of the arrangement, then the CVA will come into effect, allowing the company to ringfence its debts and remain operational.

How long do Company Voluntary Arrangements last?

A Company Voluntary Arrangement usually lasts for between 2 and 5 years, depending on the business’s financial position and its ability to repay creditors.

Generally speaking, the length of a CVA can’t be altered within the first 12 months, however there are certain circumstances that may allow you to end a CVA early once that period has elapsed.

If your business enters into a CVA and later finds itself in a position to raise a lump sum either by borrowing or by attracting further investors, you can approach directors about an early termination.

Like the original CVA, early termination will need to be approved by at least 75% of creditors.

Will a CVA impact all my creditors?

Yes, if you enter into a Company Voluntary Arrangement, the agreement will be legally-binding for all your creditors.

That means your company’s unsecured creditors, it’s secured creditors, creditors who voted to ratify the CVA, and even the creditors who were in the minority who voted against it, will all be bound by the arrangement.

Creditors will have a chance to challenge the CVA for up to 28 days from when it was approved, either on the grounds of material irregularity or unfair prejudice, but once that time has passed, they will be legally obliged to see it through to its end.

How will a Company Voluntary Arrangement affect my employees?

A CVA releases company directors from their liabilities for company debts and allows the business to continue operating so, in theory, employees won’t be affected by a Company Voluntary Arrangement.

That said, certain Company Voluntary Arrangements force directors to negotiate with creditors over restructuring, which may include specific departments and employees.

The only other way a CVA might affect your employees is if your company breaches the terms of the agreement and creditors push for compulsory liquidation.

What’s the difference between a CVA and entering into administration?

A common query among directors whose businesses are facing financial difficulty where CVAs differ from other insolvency procedures, in particular administration.

Company Voluntary Arrangements work in a similar way as Company administration, however one obvious difference is that Company Voluntary Arrangements must be approved by creditors, whereas administration does not.

In addition, administration will stop your company operations and force you to sell assets to immediately pay for your liabilities. Company Voluntary Arrangements, on the other hand, are ring-fenced from day-to-day to day operations, allowing you to continue trading while dealing with your debts.

Write off up to 81% of unaffordable debt.

Creditfix have helped over 182,000 people in the UK with their debts.

We can help you avoid bankruptcy

Stop nasty phone calls from creditors

Make one affordable monthly payment

Should I get debt advice if my company is facing financial difficulty?

It’s not easy dealing with a company facing financial distress. Not only is your own welfare on the line; you’re also responsible for the welfare of your employees.

If your Company is facing serious financial difficulty, it’s important that you get professional debt advice as soon as possible. That’s where we can help.

Creditfix is one of the UK’s biggest debt relief companies. Our team of specialists have years of experience in insolvency, and will be happy to discuss whether a Company Voluntary Arrangement is the best solution for you. For free initial advice, call Creditfix today on 0800 0431 431.

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18/11/2021

What is a Company voluntary arrangement? What you need to know

18/11/2021

What is a Company voluntary arrangement? What you need to know

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A Company Voluntary Arrangement (CVA) is the business equivalent of an Individual Voluntary Arrangement – an insolvency procedure that allows businesses struggling with debt to repay creditors while continuing to trade.

In this guide, we’ll explain what a Company Voluntary Arrangement is, how it works, and how it might allow you to protect your employees and settle your debts at the same time.

You could write off up to 81% of your unsecured debt today

What is a Company Voluntary Arrangement?

Company Voluntary Arrangements (CVAs) are arrangements designed to help companies that are facing serious financial issues and debt problems.

A CVA acts as a formal agreement between an insolvent business’s creditors and the company directors, and is designed to release part or all of the liability for debts between them and ensure that no individual is personally liable.

Also known as Company Administration, Company Liquidation, or Company Refinancing, a CVA can be set up by a creditor, a director of the company in question, or an Insolvency Practitioner (IP), a licensed debt professional who then acts as arbiter of the arrangement.

A CVA is most suitable for a company that would have a promising future if it could deal with historic debts, like onerous supply contracts, and offers the opportunity to deal with the company’s creditors, make the business more viable, and potentially save jobs

How does a Company Voluntary Arrangement work?

The CVA process can differ slightly depending on your company’s circumstances, but will usually include the following steps.

CVA proposal

Once you have enlisted the help of an Insolvency Practitioner, the first step in the CVA process is to create a CVA proposal.

Your Insolvency Practitioner will gather as much information as possible about your company’s financial status, and work with you to draft an arrangement that will be reviewed by yourself and fellow directors, before being shared with your creditors.

Moratorium

A statutory moratorium prevents company creditors from taking legal action to recover their debts, but unlike with administration, there is no automatic moratorium as part of the CVA process.

You will only benefit from a moratorium as part of the CVA if your business has:

  • No more than 50 employees
  • Balance sheet assets no greater than £5.1m
  • A turnover no greater than £10.2m

Creditors meeting

Once your CVA proposal has been drafted and shared with creditors, a creditors meeting will take place. This gives creditors the chance to discuss the terms of your proposal and voice any concerns.

Once any issues have been addressed, creditors will vote on whether to ratify the proposal. If at least 75% of the creditors (by value of debt) agree to the proposal, then the CVA is approved. You won’t be obliged to actually attend this meeting, as voting is often carried out over email, post, or proxy vote.

Insolvency Practitioner report

When the creditors vet the CVA, it is sent to them for consultation. The Insolvency Practitioner will then submit a report to the court and the creditors, which includes details of all meetings held and votes cast.

Beginning of CVA

The CVA process ends with you making your first monthly contribution towards the arrangement. The Insolvency Practitioner will take payment from you each month for as long as the arrangement lasts, and distribute the money among your creditors.

Provided you maintain your agreed-upon monthly contributions, your company will be protected by the arrangement. If you default on payments, however, you will be in breach of the agreement and it’s highly likely your creditors will push for compulsory liquidation.

We have a wide range of debt management solutions that could help you write off up to 81% of your debts

Check if you qualify

Who is eligible for a CVA?

Company Voluntary Arrangements are open to businesses that are insolvent or likely to become insolvent, and who have debts of £150,000 or more. Company directors must be willing to enter into Company Voluntary Arrangements with all their creditors.

In order to be eligible, company directors must show they do not have the financial resources to rescue the business on their own, and creditors must demonstrate a willingness to negotiate a CVA with company directors.

As long as creditors responsible for at least 75% of the business’s total debts agree to the terms of the arrangement, then the CVA will come into effect, allowing the company to ringfence its debts and remain operational.

How long do Company Voluntary Arrangements last?

A Company Voluntary Arrangement usually lasts for between 2 and 5 years, depending on the business’s financial position and its ability to repay creditors.

Generally speaking, the length of a CVA can’t be altered within the first 12 months, however there are certain circumstances that may allow you to end a CVA early once that period has elapsed.

If your business enters into a CVA and later finds itself in a position to raise a lump sum either by borrowing or by attracting further investors, you can approach directors about an early termination.

Like the original CVA, early termination will need to be approved by at least 75% of creditors.

Will a CVA impact all my creditors?

Yes, if you enter into a Company Voluntary Arrangement, the agreement will be legally-binding for all your creditors.

That means your company’s unsecured creditors, it’s secured creditors, creditors who voted to ratify the CVA, and even the creditors who were in the minority who voted against it, will all be bound by the arrangement.

Creditors will have a chance to challenge the CVA for up to 28 days from when it was approved, either on the grounds of material irregularity or unfair prejudice, but once that time has passed, they will be legally obliged to see it through to its end.

How will a Company Voluntary Arrangement affect my employees?

A CVA releases company directors from their liabilities for company debts and allows the business to continue operating so, in theory, employees won’t be affected by a Company Voluntary Arrangement.

That said, certain Company Voluntary Arrangements force directors to negotiate with creditors over restructuring, which may include specific departments and employees.

The only other way a CVA might affect your employees is if your company breaches the terms of the agreement and creditors push for compulsory liquidation.

What’s the difference between a CVA and entering into administration?

A common query among directors whose businesses are facing financial difficulty where CVAs differ from other insolvency procedures, in particular administration.

Company Voluntary Arrangements work in a similar way as Company administration, however one obvious difference is that Company Voluntary Arrangements must be approved by creditors, whereas administration does not.

In addition, administration will stop your company operations and force you to sell assets to immediately pay for your liabilities. Company Voluntary Arrangements, on the other hand, are ring-fenced from day-to-day to day operations, allowing you to continue trading while dealing with your debts.

Write off up to 81% of unaffordable debt.

Creditfix have helped over 182,000 people in the UK with their debts.

We can help you avoid bankruptcy

Stop nasty phone calls from creditors

Make one affordable monthly payment

Should I get debt advice if my company is facing financial difficulty?

It’s not easy dealing with a company facing financial distress. Not only is your own welfare on the line; you’re also responsible for the welfare of your employees.

If your Company is facing serious financial difficulty, it’s important that you get professional debt advice as soon as possible. That’s where we can help.

Creditfix is one of the UK’s biggest debt relief companies. Our team of specialists have years of experience in insolvency, and will be happy to discuss whether a Company Voluntary Arrangement is the best solution for you. For free initial advice, call Creditfix today on 0800 0431 431.